Real Estate Commission
Seattle Real Estate | Gerhard Ade
Real estate commission changes (and a class-action lawsuit)
If you are ever going to buy or sell a home again, you need to know this. The way real estate business is done will change twofold on October 1, 2019.
Real Estate Commission: The Status Quo
To grasp the significance of the two changes, we must understand the status quo. Please bear with me. Reading this now will save you time later.
When a real estate agent showed you homes have you asked yourself how much the agent is getting paid if you buy a home? Have you asked the agent? Was the answer, “my services are free since the seller pays all the real estate commissions?” Or was the answer, “I will be paid from the Selling Office Commission (SOC) as stated in the listing?” Did your agent explain that “the SOC amount is a percentage of the purchase price?”
How did your agent know this? The SOC is stated as privileged information with every listing that’s entered into the database of the Northwest Multiple Listing Service (NWMLS). The SOC could be a percentage like 2.5% or a dollar amount.
Who decides what the SOC should be? The home seller. As part of the listing agreement between the seller and the listing company (and the designated agent), the seller agrees to pay the listing firm a commission and specifies the portion of the commission to be paid as the Selling Office Commission.
Confusing Jargon
Before we leave the status quo behind, I need to explain the term “Selling” Office Commission. The real estate industry continues to use “Selling” as in “Selling Agent” to describe the agent who represents the buyer! The term Selling Agent was originally coined to distinguish it from Listing Agent. Terms like Buyer’s Agent and Buyer’s Office Commission would be more appropriate.
The Twofold Change
- The commission the buyer’s office will be paid is no longer privileged but will become public information.
- The seller can decide to pay no real estate commission to the buyer’s office (agent).
What does this mean for you as a seller?
Starting October 1, when you list your home for sale, you can have a meaningful conversation with your listing agent if it makes sense to offer no real estate commission to the buying office and why that is a good or a bad idea.
What does it mean for you as a buyer?
Starting October 1, when you are a buyer, you no longer will have to ask your agent what she or he will earn if and when the deal closes.
However, you will have to ask yourself what to do, when after your agent showed you 15 homes over three weeks, you decide to buy the home that offers no commission to your agent? Mutual trust will become ever more important.
Enter the Exclusive Buyer Agreement
The State of Washington and the NWMLS have always recommended that agents working for buyers enter into such an agreement because it formalizes the relationship between buyer and agent. The agreement specifies, among other things, the duration of the relationship. It also can specify the real estate commission the buyer’s agent would be paid above and beyond the SOC stated in the listing. Buyers’ agents, including those who considered the Exclusive Buyer Agreement optional in the past, will now have good reason to insist on it. Obviously, buyers can refuse to sign such an agreement and look for an agent who will work without it.
It will be interesting to see how these two changes will play out in the real world of real estate.
Why the twofold change?
Speaking of the real world, change happens for a reason. Over the past two decades, the real estate industry has been scrutinized on the state and federal level for some of its business practices.
Recent class-action lawsuits brought against the National Association of Realtors and several national real estate firms question the ways the buyer commissions are being negotiated without the buyer’s knowledge and consent. Adding weight to the latest lawsuits is the fact that they are brought on by the same law firms who brought big tobacco to its knees.
The Northwest Multiple Listing Service calls the twofold change “Modernization of Selling Office Commission Rules” and points out that today’s consumer demands and deserves complete transparency.
Taking the wind out of the sails of these lawsuits may also have been a good idea.